In this guest article, Dean M. Leavitt, founder and CEO of Boost Payment Solutions and veteran of the electronic payments industry, discusses mission-critical factors in the continued successful growth of global B2B payments and commercial card acceptance.
At the core of the digital transformation of B2B payments, a combination of factors has culminated in unprecedented growth in B2B payments and commercial card usage and acceptance. Those factors include:
- The continued innovation of financial technology platforms;
- An increased focus on supplemental revenue streams by financial institutions;
- Financial incentives for payers and suppliers to use and accept commercial cards;
- The expanded coverage of the global payment ecosystem;
- An increasing pressure on all stakeholders to drive up operational efficiencies and drive down costs in the procurement to payment life cycle; and
- A growing awareness of the value propositions associated with electronic payments.
The global B2B payments marketplace currently represents over $100 trillion in annually recurring spend. B2B payments refer to any payment conducted between two companies, rather than between a company and individual consumer, or payments to or from government entities.
While most B2B payments are still being managed via traditional paper invoices and cheques in the US, buyers and their suppliers continue to seek solutions that migrate them off traditional cheque and invoicing systems in order to expedite payments and optimise business operations.
Payments made among businesses via paper cheques are expensive, burdensome and make for complicated accounting requirements. Through the utilisation of commercial card products, accounts payable (AP) and accounts receivable (AR) related costs can be reduced and a “win/win” scenario (spawned by the grace periods for certain card products) can be attained through the extension of Days Payable Outstanding and a reduction in Days Sales Outstanding.
Suppliers are also often subject to payment delivery wait times of 60 days or more and lack an automated process for posting remittance information. On the other side of the transaction, buyers incur the added burden and risk associated with issuing and delivering paper cheques. As such, B2B electronic payment acceptance benefits both parties by offering simplified accounting and reconciliation processes and an opportunity for improved cash flow.
In order to further expand the adoption of B2B and commercial card payments, multi-national enterprises require solutions that address the challenges and pain points of card acceptance. Financial technology innovators can provide guidance on cross border payment models that use card products to streamlined electronic payments. There are a number of commercial card products offered in the marketplace by a variety of issuing banks and third party program managers.
One of the more commonly used-products is a virtual card or single use card, which can either be processed manually by the supplier themselves, or processed automatically on their behalf via a process commonly known as a buyer-initiated payment (BIP) or a straight-through processed (STP) payment. From the supplier’s perspective, these transactions are completely passive and resemble the receipt of EFT payments.
Suppliers that accept virtual commercial card payments and do not avail themselves of BIP/STP payments are currently burdened by operational inefficiencies caused by the manual nature of the current process, security implications of accessing, storing and passing sensitive card data and, in many cases, an unnecessarily high cost of acceptance. Great strides have been made to optimize the supplier’s acceptance experience through the careful deployment of four mission-critical tools that collectively impact a supplier’s decision regarding whether to accept cards as a form of payment (or not) and they are: pricing, automation, reporting and security — or “PARS”.
Pricing is a critical tool that can be leveraged to expand acceptance. Lowering the cost of acceptance increases the likelihood of acceptance. By capitalizing on suppliers’ willingness to accept early pay discounts and other dynamic discounting products, corporate payers can expand their commercial card programs significantly.
While the issuing and corporate cardholder communities have historically been resistant to introducing lower interchange rate programs due to their perceived fear of cannibalizing revenues from existing programs, they have both recently begun to understand that offering suppliers a lower cost of acceptance, coupled with easy reconciliation tools, actually allows them to expand card programs to suppliers who would have otherwise never considered card acceptance as a form of payment without such added benefits.
Automation is another critical tool that suppliers are utilizing to drive efficiencies. Suppliers do not want to process virtual cards manually. Cheque/ACH is often outsourced to lock boxes, and suppliers don’t want to process cards in-house. Significant human resources are required for high-velocity acceptors to process and reconcile these transactions. High-velocity acceptors demand easy to “ingest” remittance detail in a format native to their ERP platform. PDF attachments and e-mails are not scalable or efficient from the suppliers’ point of view.
A third critical tool is reporting. It should be noted that a BIP/STP solution is not a complete solution without automated reporting, and as both sides of the transaction move to more ubiquitous ERP systems, their reliance on data and the ability to automatically reconcile transactions becomes mission-critical. This is especially important for high-velocity suppliers who regularly receive consolidated card payments housing hundreds or even thousands of individual invoices.
Security remains a crucial factor in the acceptance of commercial card payments. Suppliers do not want exposure to card data or to be forced to deal with multiple manual steps and security procedures. Is the card a single-use product with extensive controls over usage or is it a static card with a large open-to-buy? Auditors have begun disallowing acceptance of some traditional virtual cards if the cards are not encrypted and tokenised.
In many cases, suppliers that are currently receiving virtual card notifications from customers (or the customer’s issuing bank on their behalf) must manually log onto a portal, extract sensitive card data, process the transaction through its acquiring hard/software system and then properly dispose of such card data in order to be in compliance with PCI DSS standards. If Suppliers adopt BIP/STP protocols, they will never be exposed to card data, which would exempt them from PCI DSS compliance (and related costs) with respect to such transactions.
Flexible B2B payment solutions that support multiple commercial card platforms and address the pain points associated with PARS will likely result in higher program success and lower attrition, which will ultimately result in a much broader adoption of electronic B2B payment solutions among a broader spectrum of B2B stakeholders.
Boost Payment Solutions is the leading B2B acquirer in the U.S. and a global provider of payment technologies designed to eliminate pain points associated with commercial card acceptance. Our proprietary cloud-based platform, Boost Intercept, automates and streamlines commercial card payments for all stakeholders by eliminating the need for suppliers to manually extract card data and process transactions via hardware or software. For more information, visit us at www.boostb2b.com.
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